BI takes action to curb speculation on the rupiah

BI takes action to curb speculation on the rupiah

JAKARTA (JP): Bank Indonesia said on Friday it had been moving
to curb speculation on the beleaguered rupiah by actively
monitoring the activities of commercial banks' dealing rooms to
ensure they abided by prudential rulings.

Bank Indonesia deputy governor Miranda Goeltom said these
rulings included a prohibition on banks surpassing the daily 20
percent net open position limit, and opening forward dollar
contracts worth more than US$5 million with non-residents.

"We will be very serious in checking and ensuring that banks
abide by the rules," Miranda said on the sidelines of a hearing
between the central bank and House of Representatives Commission
IX for banking and the state budget.

"We can conduct snap inspections to ensure (the banks) follow
the rulings. They will have to be careful.

"We have also warned them that all the rulings must be
followed or they risk sanction. We sent a message to them that
the spirit of each ruling must be obeyed," she said.

Currency traders said inspectors from the central bank began
showing up at the dealing rooms of banks, particularly foreign
banks, last week to ask questions about currency transactions and
to examine documents.

The move was seen as an attempt by the central bank to help
curb rupiah speculation, but central bank officials said the
inspections were a routine move to ensure banks abide by the
prudential regulations.

The officials, however, admitted that Bank Indonesia normally
did not conduct such on-site inspections, but usually merely
checked documents sent in by the banks.

Miranda said Bank Indonesia had conducted the snap inspections
twice, and that the inspections had been a factor in the recent
strengthening of the rupiah.

In a related development, Bank Indonesia senior deputy
governor Anwar Nasution said on Friday the central bank had
appealed to its counterparts overseas to help curb speculation on
the rupiah abroad.

He did not provide any further details.

Many believe the rupiah has been heavily speculated on in
Singapore.

The rupiah has been under pressure over the past couple of
weeks, plunging to a 21-month low of Rp 9,570 against the U.S.
dollar early this week as political conflicts in the country
escalated.

Although the local currency gained back some ground between
Tuesday and Thursday, analysts said the rupiah remained
vulnerable due to the continuing domestic political uncertainty
ahead of the General Session of the People's Consultative
Assembly in August.

Embattled President Abdurrahman Wahid is scheduled to appear
before the Assembly during the session to account for his stormy
first year in office.

The rupiah closed lower at Rp 9,025 to the dollar in late
trading on Friday, compared to its Thursday close of Rp 8,890, as
the currency market awaited the President's written response to
Thursday's questioning by the House of Representatives over his
firing of two Cabinet ministers.

In other matters, Miranda expects the benchmark interest rate
on the one-month Bank Indonesia SBI promissory note to fall below
12 percent by the end of this year, assuming the political
situation improves after the Assembly session.

She explained that if the rupiah strengthened, the central
bank would allow the interest rate to fall.

The benchmark interest rate rose for the eleventh straight
week to 13.45 percent on Wednesday.(rei/bkm)